FOR MANYcharities two things happen when the economy nosedives - income slumps and demand for their services rockets. Increasing professionalism is, however, helping some make the best of bad times. Among them is animal welfare charity the Scottish SPCA, whose chief executive, Stuart Earley, says: "We are seeing a huge number of abandonments, it's worse than ever before as people find they can't afford their pets. The stories are heart-rending - blind dogs abandoned on high streets, puppies dumped in rubbish bins." But tight financial discipline, of the kind that has cut the AGM bill from s35,000 to s1500, means they are riding out what he calls an "economic hurricane".

Earley's message is clear - even in a recession people will support you if they know every possible penny goes to the front line. Indeed a recruitment drive has taken membership from 35,000 to 40,000 and they will soon have five more inspectors on the road.

Throughout the charity sector as a whole, however, there are cutbacks and service reductions, with many new projects abandoned. The problems are especially acute for the two thirds of Scotland's 23,000 charities with incomes below s25,000. Run on a shoestring, there is little room for savings.

Tom Mitchell, director of assessment and risk management at accountants Mazars, has seen the difficulties confronting certain small charities offering home-based care for clients with long-term conditions and terminal illnesses. When seeking local authority contracts they can lose out to larger, cheaper organisations due to tendering processes that don't fully reflect quality of service. "What looks as good on paper is not nearly as good at the coal face, because what the smaller organisation was doing was out of dedication and passion," says Mitchell.

Investment incomes have dropped - leaving some charities in deficit - and falling property prices reduce legacy yields. But Mitchell says some charities with shops are doing relatively well. "That's partly because shoppers are trading down, but is also because consumers see value there."

Even in areas of the charity sector that have recently done well problems beckon - building projects are likely to tail offfor social housing providers and 15 years of university expansion is grinding to a halt.

Well-run organisations responded to the recession with radical reforms. Colin Graham, Scotland area fundraising manager for Breast Cancer Care, says: "We have introduced efficiency savings from the CEO down and expanded our fundraising portfolio. It's been difficult, but we have worked exceptionally hard to maintain services and fundraising activities." One sensitive change - because the charity is so focused on living with the illness - is that it is now looking to legacy giving. It has also been finding ways for corporate sponsors to change or reduce their giving, but stay on board. Graham says: "Relationships with businesses are so important and we want to maintain them. That means being imaginative about coming up with new options that will suit them."

The Variety Club, which helps disadvantaged children, used to be an almost entirely amateur organisation but has now introduced a tier of professional management. The results have been good and COO Claire Horton is credited with having secured a number of ground-breaking partnerships with corporate supporters. Alan Fraser, four-times Variety Club chair for Scotland, says they are also fortunate because they have a wide base of loyal supporters, including many well-connected business people. And support brings benefits. "Our annual Hamilton Park race meeting is part of the social calendar, says Fraser. "And companies can achieve high-visibility for their brands through sponsorship of our Sunshine Coaches."

But charities face a fundamental problem as they rarely have a mustbuy service or product. As a result Gillian Donald, head of the charities team at accountants Scott-Moncrieff, says grant-giving bodies are seeing a huge increase in applications as more causes chase diminishing resources Yet there are ways forward, especially if business recognises the benefits of charity involvement - and that time can be as valuable as money. "Every charity I have volunteered for, I have got more from than I have put in. And the value in skills development should not be underestimated," says Donald.

Managers used to thinking operationally can get the chance to become strategic planners - and CSR goes down well with customers. Donald also suggests any slack in a company can be used for charitable purposes. "People always say you shouldn't sacrifice marketing when times are tough, but you do. So if there's spare capacity in your marketing department why not use it?" Contributions like this could prove vital as public sector cuts will mean charities bear yet more of the burden of supporting fellow Scots enduring debt, joblessness, family breakdown and mental ill health. This point is being hammered home by the Salvation Army, whose hostel in Edinburgh's Pleasance is marking its centenary, and whose 2009 appeal argues that it's the most vulnerable who suffer most in recession.

Donald says: "I was speaking to one charity chief executive who said the sector has a mountain to climb and that while things are tough already, we have only reached the foothills. "The real challenges are still to come."

INNOVATE & INSPIRE: Charities must seek out new ways to garner long-term support THE sharp decline in corporate giving poses major problems for Scotland's charities. This has been underscored in thick red ink by the row between the Lloyds TSB Foundation for Scotland and Lloyds Banking Group. The bank was accused of wanting to end the independence of its UK trusts and halve the 1 per cent of pre-tax profits it awarded them for distribution to good causes. Failure to reach an agreement led the Scottish foundation to announce it could not accept new applications, meaning charities would lose s6m a year.

Former trust CEO Andrew Muirhead says the charitable sector can ill afford to lose so much support and stresses the need for a solution. After all, lottery funding has tumbled by 70 per cent and the last year has seen 1500 charities vanish from the Scottish Charity Register. But even in these straightened times there are reasons to be positive, partly thanks to the emergence of innovative bodies that are developing new approaches to raising money and improving society. Muirhead is now chief executive of Inspiring Scotland - which raised s7m in its fi rst year and applies some of the principles of venture capitalism to philanthropy.

The so-called 'venture philanthropy' approach appeals to private sector donors precisely because it is businesslike, involving regular reports and clear evidence of what their contributions have achieved. "We like to provide people with an investment-style experience," says Muirhead. Inspiring Scotland also stands out because it engages with charities for long periods of time. The knowledge that substantial funding will be available for seven or eight years allows organisations to plan ahead and concentrate on delivering for benefi ciaries.

Muirhead says: "There are real issues with short-termism and fragmentation in funding. Even quite small organisations may have 25 funding sources, and to get that can take 100 funding applications. The charitable sector has some incredibly talented people and what I fi nd frustrating is when they have to spend 70 per cent of their time fi lling in forms and only 30 per cent getting on with the actual work of the charity. We try to free up their time and give them the space to deliver social benefi ts."

Both Inspiring Scotland and Edinburgh-based Space Unlimited are active in building bridges between young people and the world of work. Space Unlimited encourages the private and public sector to use teenagers to help them tackle a signifi cant challenge. Chief executive Heather Sim acknowledges this is a model which is very vulnerable to tough economic times yet, by being fl exible Space Unlimited has thrived. That has meant being open to projects of many diff erent kinds and durations. "We have learned to tap into the areas of the market which will be easiest. And it is often easier where people can see a clear advantage from getting inside the teenage mind. In places like the university sector there are real and obvious benefits. "Projects have included looking at what would encourage young people to study at The Robert Gordon University to become healthcare professionals, and clients have been as diverse as Oracle, Historic Scotland and KPMG.

Potential clients often worry they are opening themselves up to risk by involving people with no practical business knowledge. But Sim says the whole benefi t is access to fresh thinking by minds which have not been limited by corporate perspectives. Yet one of the key gains for the teenagers is that they pick up skills and perspectives which make them more readily employable when they leave education.

"There are tremendous gains for the young person, because they begin to recognise their own talent and their own value," says Sim. Ultimately some clients and donors recognise that engaging with bodies like Inspiring Scotland and Space Unlimited involves enlightened self interest rather than just altruism. Companies frequently complain that new recruits are ill-equipped for the workplace so it makes sense to ensure Scottish teenagers are confi dent and businesses-minded when they emerge from school.

CELEBRITY & SIMPLICITY PITNEY Bowes admits it is not the glamorous kind of enterprise which stars rush to be linked with. Yet, through its charity work for the National Literacy Trust, the mailing equipment maker has a high-profile connection with many famous names. What's more they cover a broad spectrum - from Ms Dynamite and Michelle Mone, through Amir Khan to Andrew Marr and Maya Angelou. Indeed, the Pushing the Envelope charity website is one of the few places you will find Ken Follett, Sir Bernard Ingham, Ian Hislop, Michael Barrymore and Timmy Mallett all snuggled up together.

Pushing the Envelope is an imaginative and inexpensive fundraising campaign in which well-known people design an envelope which is then sold by auction. So far the scheme has raised s65,000. Patrick Jelly, Pitney Bowes' MD, says the idea came from its marketing team and reflects a conviction that CSR is a core value, but it does something else too. "CSR is often seen as a very serious business, which in many ways it is, but we wanted to do something light-hearted, to get famous people and artists on board and do something fun. CSR does not always sit naturally with the idea of fun."

Jelly adds that the trust and the company, which has a substantial Scotish presence, have a synergy as both are about communication. Much of the company's investment is in staff time and this in itself has business beneftis as employees see the business as inclusive and caring. There are also direct gains as Pitney Bowes can generate a positive image with potential customers by highlighting Pushing the Envelope in its marketing materials.

VITAL INPUT The recession is forcing many charities to modernise - and the can mean a leap frrom the Edwardian era to the 21st century. Alan Eccles, charities expert with law firm Maclay Murray & Spens, is helping Govan's Ure Elder Fund for Indigent Widow Ladies make legal history with a private bill in the Scottish Parliament. If successful the charity will be able to cash grants of s25 to s2300 in today's money - and also let the trustees help a broader set of beneficiaries. Eccles says: "Like many charities it was established by statute and changes can only be made by parliament. There will be quite a lot of charities watching what happens and wanting to do the same."

Other charities are gaining from the input of organisations like Social Enterprise Scotland, which backs social entrepreneurship, or Pilotlight Scotland, which provides mentors from the business world. The latter offers monthly input to small charities frmo four senior businesspeople from different companies, and with a range of expertise, over 12 to 18 months. Director, Chris Horne, says: "We get them talking and thinking in new ways. In some cases we can strengthen what they already do; in others we allow them to develop new services."

Two of the 23 groups to benefit so far are Glasgow children's charity the Jeely Piece Club and The YArd, an Edinburgh adventure play area for youngsters with learning difficulties. Each now has a solid financial base and both are lokoing to expand.

YPI: Schools initiative Grassroots Scottish social services charities can benefit from a scheme encouraing 14 to 18-year-olds to join a new generation of caring citizens. The Youth and Philanthropy Initiative (YPI) is run by the Wood Family Trust in partnership with the Institute for Philanthropy.

It is currently being rolled out to schools acros Scotland and will empower students to identify causes that could benefit from a s3000 contribution. YPI is spearheaded by Garreth Wood, director of the Signature Pub Group, and will see 50 secondary schools engage with 200 charities.